DNA methylation is frequently associated with tumor suppressor gene silencing but the precise molecular mechanism of transcriptional repression is poorly understood. We have addressed the question of how Lsh controls DNA methylation at Hox genes and how this mediates gene silencing at Hox genes. Using murine embryonal fibroblasts and embryonal livers we identified several Hox genes (such as HoxC6 and HoxC8) as targets that were silenced in wild type cells (Lsh+/+) and re-activated in the absence of Lsh (Lsh-/-). Applying methylation sensitive PCR analysis, MeDIP and bisulphite sequencing a region of 2000 bp upstream of the transcriptional start site (TSS) and 1000 bp downstream of TSS at HoxC6 and HoxC8 showed profound methylation losses. Thus the change in HoxC gene expression was reciprocal regulated with DNA methylation. In order to test whether nucleosomal occupancy can influence gene silencing micrococcal nuclease protected sites at Hox genes were characterized in WT and Lsh-/- cells. Surprisingly, the pattern was similar comparing the profile derived in wild type and Lsh-/- cells. Both cell types showed a pattern with a nucleosome depleted region around transcriptional start sites (TSS) and a fixed +1 nucleosome at Hox genes. ChIPs analysis using specific antibodies against RNA Pol II indicated association of the RNA polymerase II at TSS in Lsh-/- tissues as well as wild type tissues. Thus promoter DNA methylation itself did not prevent Pol II binding. Furthermore, a molecular mechanism downstream of Pol II initiation was responsible for differences in gene expression at Hox genes. Since Pol II stalling had been recently described in a genome wide analysis in ES cells, diverse hallmarks of transcriptional elongation were examined. Whereas Lsh-/- cells showed signs of active transcription (such as accumulation Ser2 phosphorylated Pol II accumulation, and increases of H3K36 tri-methylation and H3K79 di-methylation at the gene body), wild type samples lacked these modifications suggesting a defect in elongation in methylated wild type cells. In addition, the active chromatin mark H3K4 tri-methylation was enhanced in the absence of Lsh and increases in the association of the chromodomain protein Chd1 that directly recognizes the H3K4me3 mark were detected. Chd1 in turn is known to recruit elongation factors as well as splicing factors that are intimately involved in elongation. Consistent with the role of Chd1 in splicing, impaired splicing was detected in wild type cells compared to Lsh-/- cells using a nascent nuclear run-on experiment. Finally siRNA interference technique and mutant forms of Dnmt3b demonstrated a role of catalytically active DNA methyltransferase activity in gene silencing. Thus DNA methylation plays a direct role in Pol II stalling at Hox genes The study indicates that Lsh mediated DNA methylation results in Pol II stalling at the transcriptional start sites of selected genes. Thus DNA methylation can be compatible with Pol II binding and does not necessarily exclude Pol II initiation. The study furthermore implies that Pol II stalling may serve as an alternate mechanism for gene silencing at some methylated tumor suppressor genes and therefore may suggest the possibility of novel strategies to interfere with gene silencing in cancer cells.